Tuesday, February 12, 2013

U.S. Started Currency War, Will it Continue it?

Everyone is pointing to Japan as the culprit in the currency wars, but the truth is the U.S. has escalated the war by refusing to rein in spending and continuing to print money at a rate that continues to push the value of the U.S. dollar down, which pressures exports in other countries.

Consequently, other nations, if they don't want their exports and own economies crushed, must respond with their own money-printing scheme in order to keep their currencies from rising too high against the U.S. dollar.

The silly and nonsensical statement coming out of the G7 nations caused even more problems, as it said the monetary policies promoted wouldn't be focused on the debasing of currencies. That's an outright lie, as printing money by definition is the debasing of currencies. Period.

Unless the nations agree to stop printing money and start to really cut back on government spending, the currency wars will continue on, and currencies will continue to fall in value, as the U.S. dollar has to the tune of over 95 percent since the inception of the Federal Reserve 100 years ago.

Counting on most people - including financial and economic writers - to not understand currencies, the G7 made the laughable assertion it was committed to exchange rates driven by market forces. Again, if that was the case, they would stop printing money and shrink the size of government.

Anyone who thinks this is being done allows themselves to be lied to because exchange rates have been manipulated by central banking policies for decades. It's the ramping up of printing to gigantic levels that has forced the issue out into the open; not the decision by Japan to print more yen.

The ECB has been attempting to shrink its balance sheet, with banks paying back cheap money printed by the central bank in 2012. If the U.S. and Japan continue to expand their money supply, the euro will undoubtedly rise against the two currencies, which will result in the region having to respond with an effort to weaken the euro.

It's improbable Japan will stop its strategy (although it may publicly assert it does), so a full-blown currency war involving numerous nations could expand. The question is when will the U.S. stop its part in the wars and cut back on its outrageous printing of money. Until that happens, we'll see this continue to be an issue; one that will worsen before it gets better.


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